Inflation Once Had No Name, Let Alone Remedy

Empires from Rome to China struggled to restore the value of currencies that spiraled out of control

By Amanda Foreman of The WSJ. Excerpts:

"Even if experts don’t always agree on the specifics, there is broad agreement on what inflation is and on its dangers. But this consensus is relatively new: The term “inflation” only came into general usage during the mid-19th century.

Long before that, Roman emperors struggled to address the nameless affliction by debasing their coinage, which only worsened the problem. By 268 AD, the silver content of the denarius had dropped to 0.5%, while the price of wheat had risen almost 200-fold. In 301, Emperor Diocletian tried to restore the value of Roman currency by imposing rigid controls on the economy. But the reforms addressed inflation’s symptoms rather than its causes. Even Diocletian’s government preferred to collect taxes in kind rather than in specie.

A lack of knowledge about the laws of supply and demand also doomed early Chinese experiments in paper money during the Southern Song, Mongol and Ming Dynasties. Too many notes wound up in circulation, leading to rampant inflation. Thinking that paper was the culprit, the Chongzhen Emperor hoped to restore stability by switching to silver coins. But these introduced other vulnerabilities. In the 1630s, the decline of Spanish silver from the New World (alongside a spate of crop failures) resulted in a money shortage—and a new round of inflation. The Ming Dynasty collapsed not long after, in 1644.

Spain was hardly in better shape. The country endured unrelenting inflation during the so-called Price Revolution in Europe in the 16th and 17th centuries, as populations increased, demand for goods spiraled and the purchasing power of silver collapsed. The French political theorist Jean Bodin recognized as early as 1568 that rising prices were connected to the amount of money circulating in the system."

"The great breakthrough came in the 18th century as classical economists led by Adam Smith argued that the market was governed by laws and could be studied like any other science."

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